chapter 7 - A Flashcards
What is the London Market known as?
A subscription market
This means that more than one insurer can participate in any single risk.
What does ‘capacity’ refer to in the context of underwriting?
The maximum amount of business that an insurer can insure in any one year
Capacity is agreed by the regulator and should not be exceeded without necessary permissions.
Why might an insurer take less than 100% of a risk?
Due to capacity limits, appetite for risk, aggregation concerns, broker influence, or insured’s influence
Each factor plays a role in how insurers decide to participate in risks.
What happens when an insurer takes 100% of risks?
It fills its capacity more quickly
This can limit the insurer’s ability to take on additional risks.
How can reinsurance create more capacity for an insurer?
By transferring some of the risk to the reinsurer
This allows the insurer to write more original risks.
What is the purpose of spreading exposures over different risks?
To protect investors better against the risk of loss
This is part of an insurer’s appetite for risk management.
What is ‘aggregation’ in the context of risk acceptance?
Monitoring the potential of accepting risks exposed to one event
For example, too many risks in one location can lead to higher losses from a single event.
What role does a broker play in the subscription market?
Choosing the insurers that will subscribe to the risk
Brokers can spread risks thinly among many insurers or approach fewer insurers for larger shares.
What are the two categories of insurers in a subscription market?
Leaders and followers
They have different roles and responsibilities in the underwriting and claims processes.
Can the insured influence the choice of insurers?
Yes, they may prefer a single insurer or a specific lead insurer
This influence can affect how risks are placed in the market.
Is the London Market the only subscription market?
False
Insured or brokers can also choose insurers from outside London.
What is the traditional method of negotiation and presentation of risk by brokers to underwriters?
Face-to-face process
What is the primary goal of the London Market Group (LMG) in developing electronic processes?
To make it easier to do business in the London Market
How much of every £100 of premium received is spent on operating costs for insurers in the London Market?
30-40%
What is the impact of leaner operating models on premiums?
They can lead to cheaper premiums
True or False: Electronic placing is intended to completely eliminate face-to-face negotiation.
False
What is the name of the electronic placing system developed by the market?
Placing Platform Limited (PPL)
What key functions does the Placing Platform Limited (PPL) system provide?
Handles the whole process from quote to binding final risk and post bind endorsements
Fill in the blank: Electronic placing allows both parties to maximize the use of their working days by smoothing out traditional _______.
peaks and troughs
What major event in 2020 led many market participants to realize the potential of electronic placing for complex risks?
The pandemic
What advantage does electronic submission of documentation provide to brokers and underwriters?
More efficient process
What does the Placing Platform Limited (PPL) system provide in addition to handling the placing process?
Full audit trail and integration with back office systems
What is the overarching aim of the market modernisation programme that includes electronic placing?
To provide more cost-effective and efficient services
True or False: The current operating costs in the London Market make it competitive with other markets.
False
